Medtronic's $800-million-plus bet on still-early-stage catheter technology for treating hypertension is a risk worth taking, company watchers suggest, considering many of the device giant's core offerings are in mature markets with paltry growth prospects.

The firm announced a definitive agreement Nov. 22 to acquire Mountain View, Calif.-based Ardian and its Symplicity renal nerve ablation catheter technology for $800 million upfront, plus milestones. Medtronic already has an 11% stake in the company and views Ardian's technology, which uses radiofrequency energy to deactivate kidney nerves that contribute to development of hypertension, as a potential blockbuster.

"This strategic acquisition gives us a considerable head start on a multi-billion-dollar market opportunity in one of the biggest markets in medicine," said Bill Hawkins, CEO of Medtronic, commenting on the deal during a Nov. 23 conference call to announce Medtronic’s fiscal 2011 second quarter financial results.

"Hypertension is a significant and growing global health care problem and a disease that cannot be controlled with existing drug therapy," he noted.

The announcement comes on the heels of promising data reported for Symplicity in mid-November at the American Heart Association meeting. In a randomized trial, patients with severe hypertension who had not responded to at least three drug therapies maintained a significant average blood pressure drop six months following the procedure that was not observed in those who were kept on drugs alone. There were also no serious device-related adverse events in the trial. (See " Also see "Ablating Blood Pressure: Ardian's RF Catheter Hits Hypertension Endpoint" - Medtech Insight, 22 November, 2010. " – "The Gray Sheet" Nov. 22, 2010.)

Ardian planned to leverage the results to launch the device in earnest in Europe and Australia, where it already has marketing approval. The effort could be greatly accelerated by Medtronic once it takes control of the company by early next year.

Steep Price, But Worth It, Analysts Say

Despite the promise, the technology is not a sure thing. In an editorial posted last week in The Lancet, where the Symplicity trial data was published, physicians suggested that the "jury is still out" on the procedure, noting the need for stronger data, including a sham-controlled trial.

In an editorial posted last week in The Lancet, where the Symplicity trial data was published, physicians suggested that the "jury is still out" on the procedure.

The editorialists also pointed out that although 84% of patients treated with Symplicity saw their systolic blood pressure decline by 10 points or more, only 19 of the 49 in the group achieved SBP of less than 140 mm Hg, the standard high-blood-pressure threshold.

Some of these issues will need to be addressed in a U.S. pivotal trial, which Ardian has been negotiating with FDA in hopes of starting early next year and finishing in 2012. Medtronic’s relatively vast resources could also help move this process forward post-acquisition.

"Our decision to purchase Ardian at this point in their technology cycle allows us to apply our clinical, regulatory and reimbursement expertise to help maximize the overall market potential," Hawkins said.

Still, investors are likely to be taken aback by the price tag, at least in the near term, analysts say.

"Justifying $800 [million-plus] for an early-stage technology with only Phase II data and U.S. commercialization unlikely before 2014 is challenging," Morgan Stanley's David Lewis writes in a Nov. 22 research report. Nonetheless, Lewis expects the deal will pan out for Medtronic in the long term.

In any case, J.P. Morgan's Michael Weinstein says Medtronic has little choice.

"Between its [cardiac rhythm management], spine and stent businesses, nearly 60% of Medtronic's revenue ... is projected to be flat to down over the next 3-5 years," Weinstein writes in a same-day note. With sufficient cash on hand likely, "Medtronic needs to take more risks in its investment decisions" to break beyond low-single-digit growth in the foreseeable future, he argued.

Medtronic Revenue Growth Trudges Along

Medtronic reported 2% revenue growth from the prior year period, reflecting declining sales of implantable cardioverter defibrillators, pacemakers and spine devices, offset by gains in emerging product sectors.

While the company will continue to invest significantly in certain aspects of the CRM and spine units, "We are not counting on those businesses to provide the real upside growth," Hawkins said bluntly.

He tagged the Symplicity hypertension system as a major growth driver, alongside transcatheter heart valves, which Medtronic acquired in 2009, and the firm’s Interstim sacral nerve stimulation system, which is FDA-approved for overactive bladder and awaiting an agency decision on a fecal incontinence PMA.

The Ardian acquisition, Hawkins noted was part of an overarching strategy to "protect and optimize our existing base and then invest disproportionately in emerging markets and emerging therapies."

The company says the deal will be accretive next year, but that needed investments in the technology will dilute earnings in 2012 and 2013.

By David Filmore

Medtronic Bets On Blockbuster Hypertension Market With Ardian Acquisition

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